The
governments that have frozen funds controlled by
Gaddafi, Mubarak, Ben Ali and their cronies should
name the banks holding their
assets, anti-corruption group Global Witness demanded
today. A clear message
must be sent to banks that doing business with corrupt
dictators is
unacceptable: first, those banks holding dirty money
should be publicly named
and then regulators need to devise a new system which
stops banks from taking
suspect funds in the first place.

Some
$32 billion has been frozen by the US, $3.2 billion by
the UK,
and other countries
such as Switzerland,
South Africa,
Japan
and Austria
have frozen funds connected with North African
despots. This has been hailed by
governments as an achievement, but it actually
highlights the catastrophic failure
of the anti-money laundering laws that are supposed to
have kept dirty money
out of the financial system in the first place.

Corrupt
rulers control billions of dollars stashed in bank
accounts, despite earning far more modest official
salaries. By accepting this
money, banks are propping up brutal regimes by
allowing them to pay off
political cronies, rig elections and terrorise their
people.

“This
rash of asset seizures offers belated
recognition that these billions should never have been
under the personal
control of dictators. On what
basis could the banks involved possibly have thought
that the funds in these
accounts were legitimately earned? The banks shouldn’t have taken
the money, and governments shouldn’t have let them
take it. These funds
belong to Libya,
Egypt
and Tunisia
and the people of these
countries now have a right to know where their money
is,” said Anthea Lawson,
head of the Kleptocracy campaign at
Global Witness.

Currently
banks are required to do due diligence checks to
ensure they know their customer’s identity and source
of wealth. If they
have concerns the money is illegally earned, they are
supposed to file a report
with the authorities. The problem is that banks are
not motivated to dig deep
into their client’s source of wealth because they
might find something
that makes it hard to accept the money, so they adopt
a box-ticking approach to
their due diligence checks.

Governments
need to send a clear message that this behaviour
by banks is unacceptable. As well as naming the banks
that hold the frozen
funds, they must devise, and effectively implement, a
new approach which stops
banks doing business with those dictators not
currently making headlines. This
must account for three key principles:

- If a bank cannot get its
senior
politician customers to explain their wealth, then
it should turn down the
money. Senior officials should be able to explain how
their
assets were earned legitimately, especially if there
is a significant difference
between their official salary and their actual wealth.
If they cannot explain
there should be a presumption that that their funds
are the proceeds of
corruption. This concept of “illicit enrichment” is
already
recognised in international treaties such as the
United Nations and the Inter
American conventions against corruption.

- Banks and other investment
managers
should disclose full details of state assets that
they manage. In a
dictatorship where one individual, or a small cabal,
exercises almost complete
power over the state, there is a very thin dividing
line between state and
personal investments. For example, it appears that
Gaddafi has significant
personal control over the state funds invested in the
Libyan Investment
Authority. These funds may look like they belong to
the state but are actually
under the effective personal control of a ruler who
has captured the state. The
citizens of countries such as Libya
have a right to know where state funds are being held
and what they are being
spent on.

- Such measures should be
accompanied by
national registries that list the ultimate owner or
controller of companies and
trusts. Corrupt politicians hide their identity, and
therefore their
assets, behind complex webs of front companies and
legal structures. This can
make it very difficult for banks, or law enforcement,
to find out who actually
controls assets.

“A new
approach is need to tackle corruption and dirty
money. This isn’t just about fast cars and luxury
yachts. It’s what
allows dictators to stay in power beyond the wishes of
their people. Even if
banks are technically compliant with the law, they are
hiding behind regulatory
failings to continue their profit-driven dirty pact
with corrupt
tyrants,” said Lawson.

/ Ends

Notes to editors:

Personal
accounts of senior figures: Global Witness has recently
shown how banks in London accepted bribe payments
for corrupt Nigerian state governors several years
after being reprimanded by the British banks’
regulator, the Financial Services Authority (FSA),
for having accepted the Nigerian dictator Sani
Abacha’s millions See International
Thief Thief: How British banks are complicit in
Nigerian corruption, October 2010.

In
our report Secret
Life of a Shopaholic, we
also showed how Teodorin Obiang, son of the
president of Equatorial Guinea, bought a $35 million
Malibu mansion, a $33 private jet and a fleet of
fast cars despite his salary of $6,000 a month as a
minister in his father’s government, and was able to
transfer the money for these purchases into the US
through American banks.

State
funds: In 2006 Global Witness revealed how $3
billion of Turkmenistan’s
gas income was at Deutsche Bank in Frankfurt under the
effective personal control of then-president
Niyazov. Deutsche Bank and the German regulator,
BaFin, brushed off our concerns saying these were
‘state accounts’. However we had been told by a
former chairman of the Central Bank that this money
was treated by Niyazov as his ‘personal pocket
money.’

Banks
doing business with tyranny: In mid-2008 Global Witness
wrote to the (then) top 50 banks in the world to ask
if they had a policy of not doing business with
certain types of regimes, including highly corrupt
and highly repressive regimes. Of the 16 which
deigned to reply, all but one did not answer this
question. Only Rabobank did, saying that it did not
have such a policy. The full results of this survey
were published in our report Undue
Diligence: How banks do business with corrupt
regimes.

Previous
failure: In the UK,
the regulators have not learnt from previous
failings. In 2001 the regulator, the
Financial Standards Authority (FSA) revealed that
British banks had accepted $1.3 billion of stolen funds from
Nigerian dictator Sani Abacha. While the FSA
released a report detailing catastrophic anti-money
laundering failings at a number of banks, it refused
to name which ones.

Article
20 of the United Nations Convention against
Corruption and Article 9 of the Inter American
Convention against Corruption set out the corruption
offence of illicit enrichment.